INTERNATIONAL TAXATION

USAco, a domestic corporation is the wholly owned U.S subsidiary of FORco, a foreign corporation. The U.S country F Tax treaty exempts payments from withholding taxes. USAcos financial statements appear as follows:

Balance Sheet

Assets Liabilities & Owners Equity

Cash $1,000 Notes Payable $4,000

Receivables $5,000 Owners Equity $2,000

Income Statement

Gross Income $500

Admin Exp. $350

Interest Exp. $100

Answer should be in accordance with Section 163(j)